Tuesday, April 30, 2013

Last night, the BBC's Panorama programme showed
a programme outlining a modern morality tale. The case involves a number of
Russian businessmen who have fallen out with each other and are busily trying
to play 'catch-up' over who owes what to whom and who is going to pay. It is a
modern version of 'last man standing'. and it is being fought out with the
bodies left lying on the leafy roads of St George's Hills and in London streets.

This blog is not the place to dissect the
rights and wrongs of this convoluted case which involves the usual detritus of
Russian billionaires, former State assets, stolen companies, allegedly
fraudulent tax rebates, money laundering, investment companies, Swiss bank accounts,
etc, etc.

However, what this case does offer is a very
useful case study and cautionary tale as to the present state of money
laundering compliance in the UK today, and who is pulling the strings of State!

We are caught on the horns of a dilemma.

On the one hand, the Coalition Government and
its toadying ministers and opportunist fellow-travellers, are all busily making
London the home of choice for every foreign crook, wiseguy, mafiosi, and
biznizmenii!

Our political masters are desperate to
encourage any wealthy foreign sleazebag who wants to relocate to London to do
so. The red carpet will be rolled out for them, HM.R&C will fall over
backwards to carve out a sweetheart deal for them, (a £4.5 billion sweetheart
deal announced today - how much should it really have been? ), potless football
clubs will queue up to offer their near-bankrupt stock for investment and money
laundering purposes, and every conceivable opportunity will be made to make
them feel welcome.

If they want to sue each other, why not come to
London and do it here! That at least is Boris Johnson's call to arms.

Bo-Jo, never one to miss a cheap trick has
urged Russia's oligarchs to sue each other in the London courts, in direct
contradiction of the government's policy of discouraging "libel
tourism".

"If one oligarch feels defamed by another
oligarch, it is London's lawyers who apply the necessary balm to the ego,"
Johnson told a conference in London.

"I have no shame in saying to the injured
spouses of the world's billionaires: if you want to take him to the cleaners,
take him to the cleaners in London, because London cleaners will be grateful
for your business."

Johnson, who clearly still believes in the
value of the now-denounced 'trickle-down' economics, has argued that such
cases, with the associated legal fees, are welcome. As usual, he has said the
money would go "into the pockets of chefs and waiters and doormen and
janitors and nannies and tutors and actors and aromatherapists - and keep the
wheels of the economy turning, and put bread on the tables of some of the
poorest and hardest-working families".

This is to ignore the army of greasy fat-cat
lawyers whose trousers will bulge even more agape at the fees their putative
Russian litigators will stuff into their pockets!

On the other hand, inviting the wealthy
Russians to come and live here in the UK is to hold out a hostage to fortune.

Russia is a quasi-criminal state, a
semi-licensed kleptocracy, in which the rich, who have grown very wealthy
indeed from the looting of the State, maintain their position by paying tribute
in the form of modern Danegeld to whomsoever is designated as the recipient of
such payments, prior to finding their way into the accounts of the politicians and
other organised criminals who control them.

It has been like this since Brezhnev first did
his dubious deals with the 'Vory v zhakony' the 'thieves in law', back in the
bad old days when the underground black market was really the only remaining
means of exchange alive in Russia. In return for a percentage of the take, made
payable to selected KGB front operations, the Government permitted the crooks
to operate the black market without interference. Without it, huge numbers of
people would have faced slow starvation. The men, and their descendents, who
ran these fronts, those that survived the constant internecine struggles, are
now beyond the reach of the ordinary law and semi-respectable, insofar as it is
ever possible to achieve that status in Russia.

The Russian Government is willing to play along
with these Oligarchs, just so long as they do not seek to involve themselves
with the political process. However, if they do interfere, they can quickly
find themselves on the wrong end of the strong arm of the Russian State.

Much safer then to get out, while you can, and
seek a safer haven elsewhere, somewhere with all the facilities a recently
wealthy Russian might enjoy, with good schools, and all the business facilities
that the modern kleptocrat needs, in fact somewhere very much like London.

Now, this is where the dilemma begins to become
more acute.

In the UK we have stringent laws to prevent the
proceeds of criminality from being laundered through our financial
institutions. Last night's Panorama programme demonstrated vast sums of
fraudulent tax evasion being laundered through the international banking
process, and at one important stage, being moved through the bank accounts of
an English company.

The programme presenter entertained a degree of
purported shock and concern that a UK company might have been involved in
helping to launder the criminal proceeds of what is, by any standards, a
significant fraud allegation!

The truth is much more prosaic. UK companies
have been routinely used to launder criminal money out of Russia and the former
old Com-bloc countries for many years.

The architects of these schemes make use of a
little-known phenomenon which is that where a UK company is not carrying on any
business or if the Registrar of Companies has reason to believe that a company
is not carrying on business or is not in operation, its name may be struck off
the register and dissolved without going through liquidation or any other kind
of investigation.

This is a fantastic facility of which much use
is made by professional launderers, and it works like this.

The person creating the laundering chain, does
not want to leave behind any unnecessary avenues for further investigation. So,
he will create a UK limited company as part of the process, the aim being to
obtain a UK bank account.

It is widely recognised and believed among
foreign investigatory agencies that the UK has an enviable anti-money
laundering investigative process, so it is a widely-held fiction that if there
is a UK company involved in a financial transaction, little additional work
needs to be done because the very existence of a UK company, gives the whole
scheme credibility.

Once the bank account has been acquired, the
dubious transaction is carried out, the money paid through the account of the
UK company and then moved on again as part of the laundering process. It is
highly unlikely that the UK bank will have done anything about the payment,
indeed, it is unlikely that they will have picked it up as there is usually
only one transaction, and most banks' compliance monitoring software is not
calibrated to understand this feature.

Then, all the launderer needs to do is to wait,
because if the UK company submits no annual returns to the Registrar of
Companies, the Registrar will later assume that the company is not trading or
carrying out any business, and conveniently wind it up, and remove its name
from the Register of Companies. This trick has been used countless times by
criminals to create structures to commit fraud and money laundering, indeed
HMRC have in the past uncovered evidence of literally thousands of such
companies lying idly around waiting to be struck off.

This is what has happened in the case that
Panorama were reporting, and it comes as no surprise to learn that yet again,
London had become the focal point for the laundering of this allegedly
fraudulent money, paid into the account of the UK company from somewhere in
Latvia. The Latvian connection should have been more than enough to set the
laundering alarm bells ringing, the Russians have used the services of the many
Latvian enterprises for many years to move their klepto-funds around the world!
But London remains the true focal point for every Russian wise-guy!

This is because we are offering these services
to all these foreign crooks and we do so openly. Our banks offer secure money
laundering facilities, and even, as HSBC have so amply demonstrated, will act
as principals in the laundering process themselves!

We have all the professional service firms any
foreign tax fugitive could need. I would not be at all surprised if the
corporate structure set up to meet the needs of these alleged criminals was
created by an American law firm, either here in London or in Moscow.

That is because for many years US law firms
operating in foreign jurisdictions were not subject to suspicion-reporting
requirements under US law, and conveniently ignored their legal obligations
under the laws of the host country. One US-based law firm I once had dealings
with organised a significant level of fugitive tax-structures for their Russian
clients, and by being present in London, were able to make significant use of
the availability of the global offshore facilities available here.

This is the final key to the conundrum and one
which is now in danger of taking the solutions out of the hands of those who
would seek to use them for legitimate means!

In a superb article entitled;

"...Austerity exposes the global threat
from tax havens..." by Jeffrey Sachs, the contemporary criminogenic status
of the world's tax havens is defined!

"...Week after week, Americans and
Europeans worn down by budget austerity have learnt about the secret accounts
of their politicians, tax evasion by leading companies and hot money
destabilising the world economy. The darker truth is that these havens are not
gaps in the world’s financial system; they are the system...

"...There are thousands more like them
working with the tax authorities to keep their money out of reach. Banks such
as HSBC and UBS have been caught in the money laundering that facilitates this process...

"...How much tax revenue is lost to the
global havens? Here, too, we can only guess but the numbers are likely to be
vast. Recent estimates by the Tax Justice Network suggest that deposits are in
the range of $21tn...

"...The havens serve countless purposes,
yet not one is for the social good. They support massive tax evasion. They
underpin a global system of bribery to corrupt officials. They service the
accounts of drug runners, arms traders and terrorist groups. The prime movers
of the world’s tax-havens are the US, Switzerland and the UK. Indeed, many of
the leading havens, including the British Virgin Islands, Cayman and Bermuda,
are British Overseas Territories.

"...The public’s animus was greatly
accelerated by the Cyprus crisis. The island has for many years been a
notorious secrecy-and-tax haven, especially for Russian money. Yet this was
winked at rather than controlled. Then Cyprus blew up – a reminder of how an
unregulated financial centre can quickly turn into a mortal threat to the world
economy..."

The bottom line for us in the UK is that the
Coalition Government, together with the shadow army of semi-official specialist
advisers, apparatchiks, private sector modernisers, security consultants,
former special forces close-protection providers, ex-chief constables,
superannuated and paid-off spooks, Foreign Office clowns and Security Service
groupies, have become an alternative Executive Control mechanism, ready and
willing to provide whatever services the Russian kleptocrats, and indeed, any
other wealthy foreign wise-guy demands, because for them and their 'pragmatic'
friends, the Offshore sector now is where the real money operates and resides,
and they want to maintain their hegemony in these regions and its control, so
if doing deals with dirty rotten foreign scoundrels is part of that price, then
so be it!

Just as in the 19th Century when Palmerston
would send a gun-boat if any part of the British Empire was threatened by
Johnny Foreigner, today, the need is to protect the autonomy and the
independence of the Secret Offshore Sector, owing allegiance, as four-fifths of
it still does to the old country back in Blighty!

This is why the UK Government will never truly
impose proper anti-money laundering controls, because to do so would be to
undermine the system which keeps foreigners' dirty and criminal money from
travelling through the City of London, and enables Cameron and Osborne's school
and University chums to wax fat on the proceeds, whether from legal fees,
accounting services, banking advice, or just plain old-fashioned relocation
services!

They will never really force the banks to get
their laundering compliance into sensible shape, because to do so would be to impose intolerable pressure on the offshore sector which would mean that the UK
miss out on vast sources of interesting money which the chaps in Threadneedle
Street would rather like to have a sniff at!

The financial regulators will never pay anything more
than lip-service to dealing with the criminality of the UK banking sector,
because we want to be able to offer these financial services to foreign
rotters, and we cannot give them the full service provision in return if we are
complying in full with some EU regulation!

The shadowy men and women in the big banks, law
firms and consulting companies who service the needs of the global crooks and
wideboys, realise that these are now the players with access to the real money.
That money is tucked away in the offshore sector and protected day and night by
secrecy facilities. So if their Corporate Partners harbour any ambitions of
maintaining their million pound drawings, then they way forward is to make sure
that the offshore sector continues to be protected and cushioned.

These are the same men and women who provide
the Coalition Government with their services free to reconstruct the
tax-treatment of the corporate sector, on the understanding that they can take
their valuable knowledge and sell it to their dodgy foreign clients to keep
their money coming in to the UK place!

The on-shore banking sector is finished, the
banks saw to that, siphoning the money they stole, off balance sheet, and into
the secrecy sector! The real money is now in the hands of international
organised criminals, and they are willing to pay to keep it that way. And that
is why Russians and the other crooks will always be welcome in London, let us
not have any illusions!

Sunday, April 28, 2013

He means it kindly, he thinks I am far too
remote in my criticism of the banking/political galère, he thinks I need to get
out more, and get in line with the real world.

He seeks to make a comparison between the
recent Suarez incident and the banking mess we find ourselves in. He says;

"...I think that banking is just one
manifestation of the natural order of life with football being another...The
disgusting behaviour of Suarez being a very plain example of “being above
prosecution”. He is a barbaric thug and should have been banned for life from
playing in the English league, which is probably the limit of the FA’s
jurisdiction. If this correct justice had been handed down then no doubt his
agent would have engaged a stack of lawyers to show loss of income and
therefore require compensation. His team have said there are no grounds for the
normal 3 match suspension being extended to 10..."

He continues; "...I’m reminded of “Society
adopts the morals it can afford”. Society has to decide what we can afford. If
we cannot make examples in sport that impacts the income of one person there is
no hope for “affording” decisions that will impact thousands. I don’t see
banking as being any more morally bankrupt that most of society. Sad, but to my
mind true. Therefore to change banking we have to change society which after
all is the fulcrum..."

In many ways, I am almost forced to agree with
him. He is a good man, a brilliant businessman, who has worked very hard to
provide for his family and taken huge risks to make a great success of his
business career. He is a winner by anyone's standard, and he is worthy of
respect.

Yet he and I have always differed on our
ideologies towards what determines the fundamental truths in life. It doesn't
alter our friendship, but it does alter our outlook, and I find that I am still
uncomfortable in the recognition that he believes that "Society adopts the
morals it can afford", because that comes too close, for me, to Oscar
Wilde's definition of the cynic, "...the man who knows the price of
everything, but the value of nothing..."

The last few years have opened up for me a
startling insight into the condition of our lives, and I have watched while all
the norms with which I was brought up and which I used to take for granted,
basic honesty, truthfulness, loyalty to one's word, integrity, moral conduct,
common decency, dignity, and fairness, were traduced, discarded and turned on
their head by the actions of so-called professional men and women whose job it
was to put wholly new and proto-acceptable meanings into what was, by any
ordinary standards, behaviour which should have shocked normal people beyond
measure.

It is this growing incapacity to be shocked by straightforward
wrong-doing which I believe is rendering us increasingly desensitised to improper
conduct in public life, whether in sport, politics, banking or any other area
of social interaction.

Indeed, I believe there is a deliberate policy
on the part of certain professional attitude or opinion formers, P.R agencies,
lobbyists and some journalists, to deliberately inculcate a sense of confusion
and inconsistency in the way in which improper conduct is viewed.

We have lost the moral compass as far as I am
concerned, and we now have real difficulty in determining what is right and
what is wrong, and how those two conditions should be dealt with.

In the latter years, we have seen the High
Street banking industry turned into a vast organised criminal enterprise,
where, in the pursuit of ever bigger profits and shareholder value, the
institutions we once trusted to look after our money and to provide fair advice
which we could rely on, have turned into a savage crime gang whose entire
efforts seem to be aimed at parting us from our savings in the most shameless
ways possible.

I have received so many reported case studies
from ordinary men and women which purport to deal with the way they have been allegedly
financially manipulated by HBOS,among
other institutions, that I have to believe that some if not the vast majority
of these allegations are true. There are so many of them, and all of them
revolve around a fairly common theme, a re-evaluation of an underlying asset
for the purpose of acquiring or securing a loan or further advance of funds; a
purpoorted investment opportunity; a subsequent re-consideration of the value
of the security, quickly followed by a demand for re-payment of the entire
capital, and subsequent foreclosure. The stories all follow the same
predictable course, huge legal fees, little or no legal redress, inconsistent
court decisions, lengthy delays, little or no help from any of the formal
agencies of support, the Financial Ombudsman Service, the FSA Complaints
procedure, et al! Weasel-worded lawyer's letters, denials of basic assistance
and even more protection for the banks themselves.

It is all fairly nauseating
stuff.

This is to say nothing of the institutionalised
level of downright fraud perpetrated by the PPI scandals. The PPI episode was a
deliberate and concerted series of actions by banks and financial services
providers to cheat and defraud their clients out of billions of pounds worth of
their money. The sums involved become an integral part of the problem, because
they begin to distort our sense of values. Ordinary men and women do not talk
in terms of billions of pounds, nor indeed, millions. Very few of us talk in terms
of hundreds of thousands, we all of us have financial horizons, which in most
cases revolve around a few thousand pounds, and usually involve our taking out
a mortgage.

When an industry engages in a level of criminal
fraud running into billions of pounds, we should be genuinely shocked and
concerned. There should have been a vast public outcry and the perpetrators
should have gone to prison. Can you imagine the scenario if a gang of Romanian
immigrants had carried out a crime spree netting them £2,000,000? It would have
been headline news and police agencies around the country would have been
mobilised to deal with the scandal. But these frauds were committed by the
banks, so no headlines! We had lost the capacity to be shocked by such conduct,
and it was allowed to become part of the UK's continued enslavement to the High
Street banking Industry.

HSBC engaged in a deliberate campaign of
international drug trafficking. They deliberately and wilfully decided to
launder the proceeds of Mexican drug barons' profits, and set up a string of
banking structures to achieve their ends. The Mexican institution was a 99.99%
wholly-owned subsidiary of another HSBC entity called HSBC (Latin America),
which was in turn a 99.99% wholly-owned subsidiary of HSBC in Canary Wharf.

We are not told whether any one in HSBC had
been advised that laundering drug proceeds was against the law, but it didn't
seem to matter to HSBC, they just did it anyway. And when the news broke into
the public domain, no-one appeared to be in the least shocked or surprised!

Indeed, some went so far as to seek to defend
the failure of the so-called regulators, the Fantastically Supine Authority,
who had studiously failed to do anything about this widespread criminality. One
Government Minister, who presumably now knows better, went so far as to opine
that the FSA had no jurisdiction over the Mexican bank, despite the fact that
it was wholly owned by a British bank in London!

One of the investigators employed to listen to
the taped recordings of the dealings of the traders who were engaged in the
worst of the manipulation allegations, has described their outraged shock and
concern when hearing what was on these tapes. Employed to undertake a review of
the recordings to establish what evidence could be gleaned from them, the
investigator was primarily concerned to establish whether their own technical
competence would be sufficient to understand what they believed would be the
highly complex and arcane language used by professional bankers when talking to
each other in dealings.

'...I have never heard such vile filth and
outrageous conversations...' was the investigator's report. '...The language
these men used was just couched in the vilest and most obscene swearwords,
everything they say is portrayed in the most violent sexual terms, when they
succeed in a deal, they have 'really fucked someone over'! When they are
cheated, they have been 'regally fucked'! All they can talk about is the amount
of drinking they do, the drugs they snort and put up their noses, and the women
they habitually screw. They are all constantly cheating on their wives and
laughing between each other about the tricks and excuses they use to deceive
their wives and partners. These were the worst kind of conversations I have
ever had to listen to, these men are worse than the most brutalised animals...'

This young person had not lost the capacity to
be shocked, and the sense of outrage was clear as they described the
experience. So why were the managers and compliance personnel in these banks
not shocked, why were they not willing to make a stand and set down markers for
the kind of professional behaviour they required to be adopted?

They had lost the capacity to be shocked by the
antics of these gonzoids, and that has rapidly become the lietmotif of our
times.

The new Archbishop of Canterbury Justin Welby
has been an important member of the Banking Commission. On Saturday 27th April,
he talked about :

"...In
banking, in particular, and in the City of London a culture of entitlement has
affected a number of areas - in which it seemed to disconnect from what people
saw as reasonable in the rest of the world..."

The Archbishop has identified the zeitgeist,
the underlying sense of superiority which identifies the City of London, the
'culture of entitlement', or as I have reported it before, the 'anomie of
affluence', the sense of normlessness that comes with the receipt of untold
wealth which is not truly earned!

This is what has been allowed to flourish and
has been well-nurtured by successive governments and their pathetic attempts to
regulate the Square Mile and its denizens. This is what makes bankers believe
that they are a 'protected species'! This is what makes them demand salaries
and bonuses which offend the sensibilities of ordinary people, because they are
addicted to the right to get their own way, they have traditionally been
allowed to get away with this crap!

They have never been confronted by a strong man
or woman for that matter (Thatcher didn't take them on), and told, 'It's time
to cut you boys down to size'! Blair couldn't do it, he needed the City too much
to help finance his geo-political ambitions! Attacking Iraq was soup and nuts
to the Square Mile, a lot of people stood to make a great deal of money from
the invasion, why does anyone think that Blair had to tell so many lies to get Parliamentary
agreement to back the Americans? Blair had already promised Bush that he would
support him, but he had to get the House of Commons on side.

Brown wouldn't do it, because he was too busy
counting the money that the City was allegedly bringing in through its fantasy
financing initiatives, and Brown was willing to be seduced into believing what
he wanted to believe! This is why the City players have habitually been able to
talk down to Governments and threaten them with plans to take their business
elsewhere, if they don't get their way.

This is why they have always been able to
preside over a series of purported regulatory reforms which have never worked,
and have never been intended to work for that matter! Only a completely
demented fool would observe the history of the SIB and the FSA and try and
persuade themselves that this was a regime of regulation that was anything
other than one entirely run in the interests of the practitioners. Wholesale
crimes have been committed, billions of pounds worth of value has been siphoned
out of the pockets of investors, but no-one has gone to jail, and if that isn't
an insider's market, then I don't know what is!

All the time, the City has quietly got on with
the job it does best, looking after the criminal proceeds of others who are
willing to pay for a discreet laundry service. Now, we are beginning to get
some insights into the offshore banking crimes, and in particular the way that
major charities are used to provide convenient cover to money laundering
schemes being run through the offshore entities.

For those of us who have had to deal with the
offshore sector for many years, this is nothing new, neither is the phenomenon
of setting up clever charities and trusts for wealthy individuals, and families
to shelter behind in any way novel. When you see how it works, it is truly
shocking, but we have lost our capacity to be shocked any more!

David Cameron talks about the need for transparency
in tax matters and he calls for the end to aggressive tax avoidance, but he has
to come to terms with the fact that the world's leading tax advisers, both
lawyers and accountants, live and work in the Square Mile, and they have access
to the world's most disparate selection of tax and corporate secrecy
jurisdictions. That is why so many of the world's dodgy dealers come to do
business in London, because they know that Perfidious Albion will offer them a
safe haven and ask no questions!

Cameron is kidding himself, the rest of the
financial world knows that the UK is the world's leading offshore financial secrecy
centre, this is what we have become by selling all our principles and allowing
our moral compass to become completely distorted.

Daily, I receive letters and e-mails from
ordinary men and women who ask me to find the time to help them in their
campaigns against the wrong-doing they have suffered, and I am forced to reply
saying that I simply do not have enough time to take on every case which I am
invited to review. It is incredibly sad, because these all appear to be decent people
who have been the victims of crooks and spivs and who are entitled to better
treatment than they get at the hands of our so-called regulators.

We used to have independent agencies, until
they proved to be too effective, and were shut down. The Ombudsman or the
Parliamentary Commissioner for Administration proved to be a wonderful recourse
for help, but his findings against civil servants' incompetence and negligence
proved to be too embarrassing for them, and they shut down his effectiveness by
creating the Financial Service Ombudsman instead. From what I hear of this
agency, they seem to be very circumscribed in just how effective they might otherwise
be!

So, we must hope that the new regime of control
will re-discover its ability to be shocked by criminal and dishonest behaviour.
The insouciant shrugging of the shoulders that characterised the last regime of
regulatory oversight, coupled with the elevated diatribes of gobbledegook and
wabble-speak uttered by its Chairman, are a thing of the past, and that we can
now start of look again it criminality, and see it for what it is, and deal
with it accordingly.

If we cannot do this honestly, we truly will
get the morality we can afford!

Tuesday, April 23, 2013

All sort of explanations have been put forward to try and
explain the 2008 financial crisis. Some of them have been almost unbelievably
simplistic (most bankers are crooks - closer to the truth than most people care
to imagine), while some of them have been irredeemably complex and opaque
(anything written by Adair Turner)!

What no-one can deny is that the impact of the 2008
financial disaster has left most of us very much worse off, with very little
sign of being able to enjoy a more benign financial stability for many years to
come.

Some men and women have made significant fortunes out of
the demise of the financial sector, many of them through schemes and designs
which were purely criminal and which were designed to benefit them
individually, at the expense of their clients, and shareholders. Investigations
continue into the activities of HBOS, RBS and others. If you doubt the truth of
this statement, recall Balzac; "...Behind every great fortune, there is a
great crime..."

I have identified the year 1986 as the moment which saw a
series of important, indeed, some would say, seminal moments, in the history of
the development of fantasy financing, and opened a number of doors to providing
opportunities for financial change. What was not realised at the time, except
by a very small few, was that these changes, would in time, bring about the
very destruction of the markets on which they depended.

1986 became the tipping point for the way in which many
people came to view the financial sector, and much of the impetus for potential
change arose out of a series of important cases and phenomena which had marked
out the previous years, both in the USA and in the UK. But the financial sector
is nothing if it is not cunning, and any proposed changes soon became muzzled
and doomed to failure.

The years before 1986 I have designated as 'the Decade of
Greed' an era which became a leitmotif for the worst kind of financial scandals
on both sides of the Atlantic. After 1979 and the election of Margaret
Thatcher, London suffered from a plethora of scams and frauds perpetrated
largely in the Futures and Commodities markets, in many cases, from criminal
breaches of the extant and perfectly reasonable legislation designed to prevent
ignorant investors being inveigled to part with their money in pooled
investment schemes, with the aim of being invested in speculative Futures
contracts.

Following the election of Margaret Thatcher, the London
Financial Market had experienced a revolution in the way investor's money was
handled and permitted to be invested. Legislation which sought to protect the
financially foolhardy from their ignorance was repealed. Committed to some
heavily theoretical visions of 'free markets', none of which I believe she
truly understood, except that she had been assured that such actions would lead
to the ending of the pernicious influence of 'socialism', Thatcher had embarked
on a wholesale change of the way in which the City of London was permitted to
operate internationally, and centuries of old traditions which separated the functions
of competing financial interests were swept away, and in so doing, she had
opened the gates both to some extremely dubious financial investment capital, but
also to some highly undesirable American and European investment advisors.

I simply do not believe that Thatcher and her advisers,
caught up in a political re-structuring of society gave any thought to the
implications of these changes, but by aligning the City with the way in which
the rest of the world did business in banking, securities and derivatives, and
spurred on by the glad-handling of the spivs and wideboys in the Square Mile,
who understood a potential financial killing when they saw one; and encouraged
by the common cause made by senior civil servants and apparatchiks who saw this
as a way of setting the UK free from the yoke of Socialism, the Thatcher
Governments turned the way the City was regulated on its head, and in so doing
created a monster from which there is little chance of escape!

Thus, US Cosa Nostra Mafiosi who had become a major
nuisance in New York in selling dubious third-market securities through
unregulated bucket-shops, flooded into the London market to help all those first-time
equity owners transfer their BT, British Gas and TSB shares for worthless,
restricted stock in US companies which could not be traded on any exchange in
the world. The US mafia and their fellow-travellers walked away with millions
and millions of pounds worth of British tax-payer's value from wider share
ownership, but no-one cared because the whole process was designed to get the
shares into the hands of the City institutional slickers as quickly and as
cheaply as possible, and if the US Mafia could lend a helping hand, then what
the hell? Nothing was going to be allowed to stem the tide of deregulation!

Even when I visited the DTI from the Fraud Squad and
showed them evidence acquired from the Manhattan District Attorney's office of
the identity of some of the men running investment companies in London, and
their criminal Cosa Nostra antecedents in New York, the aloof civil servants
just laughed at me, and accused me of '...seeing the Mafia behind every
bush..!'

One junior staffer even went so far as to opine that if
things were as bad as I said, "...perhaps we should invite the Mafia to
come and regulate the City, as they would do the job so much more
efficiently..." Her departmental principals all thought this was very
witty and amusing. She later went on to become a senior regulator with one of
the alphabet soup regulatory agencies, funny role for a woman who thought so
little of the need for regulation.

The civil servants' message was very clear; "...The
Government doesn't want anything getting in the way of wider share ownership,
so get back to your office and stop meddling in issues of high policy, Mr
Plod..!"

They didn't give a flying fuck if London became, as it
did, the fraud capital of Europe. They didn't want to put their possibilities
of promotion and their putty medals at risk, and they were content to sit back
and do nothing while all the time, the London market was sold to the lowest
bidder.

In this era in the USA, a number of very clever men were
making a vast fortune out of a practice known as 'arbitraging', which put at
its simplest, was identifying shares of companies which were financially
undervalued, and then making take-over bids for those companies, stripping out
all the value, and then dumping the rest of the business and its staff to fend
for themselves, leaving factory premises open to the skies and whole Mid-West
towns full of unemployed workers.

Men like Carl Icahn, Dennis Levene, Ivan Boesky, and
Michael Milken, complete with a whole list of hangers' on, including from the
UK, Sir James Goldsmith. These men had driven a swathe right through US
Corporate America, and had asset stripped all the residual value which was
intended to support these companies through the hard times.

They had been able to succeed because of the favourable
tax treatment of debt instruments that was introduced by Ronald Reagan when he
became President in 1981. Among all the other de-regulatory changes he
introduced into the management of financial markets, in his free-market
rhetoric-driven, Chicago School of Business political theories, this did much
to undermine the validity of the US market space.

Ronald Reagan rarely catches any blame these days for the
present economic mess that has destabilized markets in the United States and
around the world. In fact, ironically, some Americans still praise the former
president for taking the country in bold new directions during his years in the
White House, in much the same way that people in the UK still praise Margaret
Thatcher.

These admirers rarely acknowledge how central Reagan’s
ideas, championed by Thatcher in the UK, were to the market difficulties
troubling us today. As the country’s greatest champion of deregulation, Ronald
Reagan contributed more to today’s unstable business climate than any other
American. His long-standing campaign to minimise the role of government in
American life, produced the conditions that ultimately proved disastrous for
international business.

The main problem with both free-marketeer's outlook was a
failure to recognize that much government regulation can serve business
interests very effectively, particularly if you want to serve the interests of
the majority, as opposed to the privileged few. Many of the regulatory programs
started by Franklin D. Roosevelt’s New Deal in the 1930s aimed to promote
fairness in economic competition. That legislation required greater
transparency so that investors could more intelligently judge the value of
securities in the stock market. The reforms mandated a separation of commercial
and investment bank activities, since speculative investments by commercial
banks had been one of the principal causes of the financial crash. Roosevelt’s
New Deal also created a bank insurance program, the FDIC, which brought
stability to a finance industry that had been on the verge of collapse.

These and other improvements of the New Deal era worked well.
For the next half century American markets operated with impressive stability,
they spread the wealth of America among a vast new emergent middle class, they
sponsored and delivered the 'American Dream', they enabled the USA to win the
2nd World War and help it to re-build a shattered Europe and Japan, and still
the country’s financial system did not suffer from the kinds of shocks that
have upset the American economy in recent years.

But Regan was fixated by Chicago School 'trickle-down'
economic thinking which mandated removing as much regulation as possible
because it was perceived as a brake on enterprise, and raising taxes on the
low-paid while reducing taxation on the rich. The removal of rules that promoted
fair business practices, that prevented conflicts of interest, that limited
levels of speculative capital, and which taxed certain profits at premium
rates, fostered dangerous risk-taking. When the requirements for managing
Savings and Loan institutions (the US equivalent to our Building Societies)
became lax in the 1980s, leaders of those organizations, now freed from rules
which kept them on the straight and narrow, threw money around and invested money
recklessly in ways that had hitherto been denied to them. Many institutions,
unsurprisingly, failed or came close to failure, and the cleanup cost more than
$150 billion. Yet strangely, no-one thought to blame the de-regulation mania for
that crisis, and no blame would stick to the Teflon President.

At the same time, the arbitrage mania for stripping
companies of their assets meant that no Chief Executive could risk keeping any volume
of cash or asset value on the books of his company for fear that the 'Arbs'
would strip him of it, and his job would go as well. The end result was an orgy
of speculative M&A activity which drove a hugely over-valued market in a
seemingly endless money-go-round of pointless acquisitions which made money
only for the bankers and the lawyers, but most of the newly merged companies,
which were forced to pay the costs of the acquisition process made less revenue
or profit as a result of the mergers than before.

The reality was that thesecurities of these well-capitalised target companies had become the
subject of an insane-level of insider-information broking, so that the
information of which shares of which companies were about to become merger
targets drove an industry of insider dealing. The end result after some serious
investigation of the arb industry by the SEC and the US Justice Departments,
was a series of major prosecutions for insider dealing and securities fraud.
One of the leading promoters, Mr 'Greed is Good' Ivan Boesky, realising that
his fraudulent rampage was over, and on learning that some of his co-criminals
were facing criminal charges, walked into the offices of the SEC and offered a
complete confession of his wrong-doing in return for a plea deal.

One of his scams had been to get involved with massive fraudulent
share dealing in the shares of Guinness plc, when they were the subject of an
attempt to take over the interests of Distillers plc in the UK. His confessions
to the SEC were passed to the UK Department of Trade and Industry.

The DTI
opened an investigation of the Guinness/Distillers Group battle and in so doing
they opened up a Pandora's box of criminal activity. They uncovered the very
worst examples of criminal British Corporate take-over activities, including
illegal share support operations, share price manipulation, market rigging, a
complete refusal to acknowledge the rules of the Companies Acts dealing with
take-over conduct, a flaccid and gutless Take-Over Panel, and a generation of
stockbrokers, broker/dealers, lawyers and consultants dedicated to the
wholesale commission of fraud in the pursuit of wealth beyond the dreams of
avarice. The Guinness case laid bare the truth of the so-called 'gentleman's
club' of the City and exposed it for being a swamp of criminality.

When confronted with the level of City fraud which was
now being uncovered as more and more cases began to be investigated by the new
Serious Fraud Office, even Margaret Thatcher was shocked sufficiently to
instruct Cecil Parkinson that in order to look good about tackling benefit
fraud, they would have to 'get the handcuffs on' the City players!

The chief prosecuting counsel at the first trial of
Guinness defendants said of them;

"...The defendants were so carried away by greed and
ambition that they were prepared to be dishonest and commit criminal offences.
They were so greedy for money and power that they were prepared to cross the
line which defines what is legal and what is dishonest..."

This case in 1986 finally made politicians sit up and
accept that the City of London was a hot-bed of fraud, financial wrong-doing
and general criminality, and that something finally had to be done to deal with
the awful recognition that the City was an organised criminal empire. The Blue
Arrow trial which swiftly followed, cemented that realisation, particularly as
the jury convicted the main protagonists, a series of blue-blooded merchant
bankers, of offences of criminal dishonesty.

So shocked was the City Establishment and its friends in
Government, the Judiciary and the upper reaches of the Great and Good, that the
message quickly came down from up above. There would never again be another Blue
Arrow-style prosecution, and that has been the same message ever since.

The introduction of the Financial Services Act 1986,
ushered in what was supposed to be the answer to a new regime of financial
regulation. This was the tipping moment, when the City was supposed to move
from an effectively wholly unregulated entity, ruled over by a series of
toothless and wholly captured institutions run by the Great and Good, to an
effective mode of financial control.

Margaret Thatcher, never a politician at ease with
detail, and still besotted by the de-regulatory theories of Reaganomics,
permitted the City of London to organise its own financial regulatory
structure, within the framework of the Financial Services Act. Like many of the
politicians who followed her, Blair, and Brown in particular, she was
completely bamboozled by the City's protestations of good intent. The Tower of
Babel of regulatory institutions the City fathers created in the following
years, was designed specifically not to work in any effective manner
whatsoever. The City truly moved to an effectively wholly unregulated entity,
ruled over by a series of toothless and wholly captured institutions run by the
Great and Good.

The introduction of new agencies of control, including
the Serious Fraud Office, the Securities and Investments Board and the plethora
of other agencies created a massive impression of structure and control, but
was effectively wholly useless at implementing any meaningful regulation, and
was always intended to be useless. And so it has all proved to be.

Certainly, by the end of the 1990's the message in the
City of London was that the much discredited Securities and Investments Board,
which was about to be superceded by the new Financial Services Authority, had
no intention of prosecuting any banking wrong-doing. The coded messages were
passed out by ministers that as long as the City continued to bring in the
money, ministers and regulators would turn a blind eye to the shenanigans being
carried on the chaps in the suits.

The whole period since the emergence of the FSA has been
one long era of regulatory retreat and incompetence, marked out by a whole
generation of staffers who have produced little in the way of work product
other than hot air! The list of Chairmen and Chief Executives, many coming
directly from the discredited banking business itself has provided a
self-fulfilling prophecy for an agency that was not capable of doing anything
effectively and lacked the leadership or the moral compass to take the lead in
regulatory control.

The banks instead became embroiled in an American-led
orgy of dubious financial creation and uncontrolled gambling, untroubled by
virtually any regulatory controls whatsoever. Recent troubles in the American
economy can be attributed directly to a weakening of business regulation in the
public interest, which is, in large part, a consequence of Reagan’s
anti-government preaching. In the absence of oversight, lending became a
wildcat enterprise.

Mortgage brokers easily deceived home buyers by promoting
sub-prime loans, and then they passed on bundled securitised documents to unwary investors.
Executives at Fannie Mae packaged both conventional and sub-prime loans, and they
too, operated almost free of serious oversight. Fannie’s leaders spent lavishly
to hire sixty Washington lobbyists who showered congressmen with campaign
funds. Executives at Fannie were generous to the politicians because they
wanted to ward off any attempts at regulation.

British banks assisted in defrauding some of their
high-net worth clients by encouraging them to invest in long-term investment
strategies, with money leveraged on the asset value of their properties through
asset-release schemes. The money released had to be placed in what were little
more than Ponzi or roll programme schemes, some of them being promoted by
crooks who were already under investigation the US. This scandal has been
effectively covered up by the FSA and other agencies and many innocent people
are still out of pocket, but there is no agency left to speak for their rights.

Meanwhile, on Wall Street, brokerage firms became deeply
committed to risky mortgage investments and did not make their customers fully
aware of the risks. The nation’s leading credit rating agencies, in turn, were
not under much pressure to question claims about mortgage-based instruments
that were marketed as Blue Chip quality. Government watchdogs were not active
during those times to serve the interests of the public and the investors.

From the moment in 1986 when Ivan Boesky grassed up his
mates in the arbitrage scandals, and rolled over on the Guinness fraud,
regulators on both sides of the Atlantic should have realised that the regime
of soft-touch regulation was over. The Guinness case and the Blue Arrow sham
proved that the Great and Good in the City took no notice of rules and laws
designed to make the City a clean place in which to do business, but no-one
wanted to have to seize the nettle of cleaning out the Auguean stable.

The policies of de-regulation imposed by Thatcher and
Reagan led to an era of wrong-doing and institutional banking and financial
institutional fraud from which it will take many years for us to recover. Yet
even now, there is not a politician who has the gumption or will to face down
the financial sector, and impose a regime of control which will work. No-one
has gone to jail for any of these frauds or white-collar crimes, truly the fat
cats my believe that they are a protected species.

I am grateful to Robert Brent Toplin,Mr.
Toplin, Professor of History at the University of North Carolina,
Wilmington,who is the author of a dozen books including Radical
Conservatism: The Right’s Political Religion (2006). for his seminal article, "...Blame Ronald Reagan For Our Current Economic Crisis..."

About Me

Having spent my career dealing with financial crime, both as a Met detective and as a legal consultant, I now spend my time working with financial institutions advising them on the best way to provide compliance with the plethora of conflicting regulations and laws designed to prevent and forestall money laundering - whatever that might be! This blog aims to provide a venue for discussion on these and aligned issues, because most of these subjects are so surrounded by disinformation and downright intellectual dishonesty, an alternative mouthpiece is predicated. Please share your views with what is published here from time to time!